Growth is the only answer to Scotland's budget crisis

Despite the recent furore over the popularity of the SNP government, not to mention the broader UK economic crisis, this forecast received a minimum of public analysis, bar the usual Unionist media faux outrage. Frankly, with UK inflation out of control, nobody in the Unionist establishment has a leg to stand on when it comes to faulting Holyrood.

But that aside, the Fiscal Commission report makes grim reading. The Finance Secretary, Shona Robison, used the word “challenging” in presenting her own Medium-Term Financial Strategy to the Scottish Parliament – which is an understatement.

Basically Holyrood’s income won’t cover planned expenditure by a growing amount, which means either tax rises or public spending cuts, or both. Capital spending on things like roads, hospitals and infrastructure is slated to fall by a whopping 14% in real terms between now and 2024.

That fall in investment will knock a hole in economic growth. The commission has revised growth down sharply, to a modest 1.4% by the end of the decade. That’s roughly where Scotland was before devolution.

For the record, the Fiscal Commission is chaired by Graeme Roy, a former civil servant and former head of the Fraser of Allander think tank at Strathclyde University. Fraser of Allander is reasonably politically neutral but tends to be sceptical regarding independence (though it was originally funded by the late Hugh Fraser as a pro-indy advocate).

Other bods on the commission include a former board member of the International Monetary Fund, a former senior economist at the Bank of England and the former head of economics at HM Revenue and Customs. They are appointed by the Scottish Government.

I suppose this tiresome obeisance to the British and global economic establishment is meant to signal to the world that capitalism is safe in the hands of an independent Scotland. Unfortunately, it also holds the Scottish Government hostage to conventional (and conservative) economic thinking.

As a result, Shona Robison was forced to greet the latest cold shower from the commission with unnecessary humility.

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True, she aimed a few ritual swipes at the UK Treasury for London-based austerity, but otherwise Robison and her strategy concentrated on Holyrood’s own hair shirt. Her language was pessimistic in tone to say the least: “… we will need to reset our spending for both capital and resource in the 2024-25 Budget … This will require us to carefully manage our limited resources … I will not back away from the tough choices …” Mrs Thatcher could not have put it better.

And how to achieve these cuts? For “cuts” is what this double-speak is intended to convey. Robison again resorted to language we have heard from the government at Westminster and (more recently) from His Majesty’s Loyal Labour Party Opposition: “I will ensure the continuation of public-sector reform in order to achieve effective and person-centred, fiscally sustainable public services”.

Ah! Public sector reform! We know exactly what that infers. It means providing services using fewer workers. Which, of course, means services will suffer.

I don’t wish to be unduly hard on Robison. The fiscal bind the Scottish Government faces is due in large measure to the failing of the UK economy (itself the result of Westminster and the Bank of England) and of UK Treasury austerity.

The current runaway inflation is down to the Tories printing money like there was no tomorrow, to the pusillanimous Bank of England failing to stop them and to big private monopolies price-gouging because they know their friends in the Cabinet will let them.

As a result, the Fiscal Commission reports that real disposable income in Scotland will fall by 4% this financial year, the steepest drop in living standards on record. (If you want a reason for independence, there you have it.)

But plummeting living standards are pushing up Scottish welfare spending while reducing likely tax income below the previously forecast.

This latter results in budget “reconciliations” in later years, ie sudden, unforeseen cuts applied retrospectively. The Scottish Budget faces a string of these “reconciliations” if tax income forecasts are wrong – forecasts based on UK official figures, not Scottish guesses. According to the Fiscal Commission: “… we continue to expect a large and negative income tax reconciliation …” because the UK Office for Budget Responsibility has been too optimistic in its predictions. Oops!

In addition, the projected savage slashing of capital spending in Scotland is a simple consequence of cuts in Treasury subventions to Holyrood allied to the fact that the Scottish Government has used up its meagre borrowing allocation.

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The UK Treasury is planning to meet its new, arbitrary borrowing limits (the result of the mad Liz Truss interlude) but backloading capital spending cuts till after next year’s General Election. That will give Keir Starmer a headache if he wins. But it certainly gives Scotland the bum’s rush, no matter who is in Number 10.

How to get out of this bind?

Robison does make a modest – almost throwaway – reference to increasing Scottish economic growth. This is sandwiched in between references to reprioritising areas of spending (aka cuts) and raising taxes (difficult given the weakness of the economy).

But promoting faster economic growth is the only real solution to Scotland’s budget crisis – for it is a crisis. The central weakness in the SNP government’s new Medium-Term Financial plan is the scant regard it pays to growth and promoting growth.

And without growth, Robison’s budget numbers don’t stack up. The result will be more cuts and the only conceivable fat is to cut Scotland’s unique welfare spending.

Robison made the usual vague references to promoting green jobs, though these have been wholly lacking in North Sea renewables despite John Swinney once promising 100,000 jobs in this sector.

But there won’t be any bonanza in green jobs without investment – investment that the Tories are sucking into England where their voters are.

Meantime, the SNP-Green coalition is working hard to alienate local companies through the ill-judged recycling scheme and the equally ill-judged attempt at over-regulating the fishing industry. No wonder the Financial Secretary avoided specifics when it comes to growth.

But such reticence cannot – must not – continue. We need to double Scotland’s economic growth to 3% and more. That means upping the amount of capital investment in machines and new technology, to increase productivity.

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That, in turn, means a massive reorientation of fiscal incentives. We literally need to shift spending (public and private) from consumption to investment.

That is not popular but it will pay dividends in providing greater public resources eventually. More to the point, it will secure more well-paid jobs in the short run.

The problem is that the SNP government wants to be all things to all people. The path to independence has been presented as costless when it is anything but. However, staying inside the UK is an even costlier option.

Voting No in 2014 has directly and demonstrably reduced our living standards. We now need to rebuild the Scottish economy. Everything else must be subordinated to that goal.